TO:
Honorable Mayor and Members of the City Council
THROUGH:
Bruce Moe, City Manager
FROM:
Steve S. Charelian, Finance Director
Libby Bretthauer, Financial Services Manager
Julie Bondarchuk, Financial Controller
Marcelo Serrano, Budget & Financial Analyst
SUBJECT:Title
Conduct Public Hearing and Consideration of Resolutions Adopting the Fiscal Year 2023-2024 Operating Budget and the Gann Appropriations Limit (Finance Director Charelian).
(Estimated Time: 15 Mins.)
A) CONDUCT PUBLIC HEARING
B) ADOPT RESOLUTION NOS. 23-0067 AND 23-0068
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_________________________________________________________
Recommended Action
RECOMMENDATION:
Staff recommends that the City Council: (1) Conduct a public hearing; (2) Adopt Resolution No. 23-0067 adopting the Fiscal Year (FY) 2023-2024 Operating Budget and authorizing the City Manager to take certain personnel-related actions; and (3) and Adopt Resolution No. 23-0068 establishing the Gann appropriation limit for FY 2023-2024.
FISCAL IMPLICATIONS:
With the passage of Resolution No. 23-0067, the FY 2023-2024 Budget will be adopted, as modified, for the fiscal year commencing on July 1, 2023.
The FY 2023-2024 Budget includes revenues of $180,042,732 and expenditures totaling $188,627,452 across all funds. The General Fund is structurally balanced with revenues of $93,300,981 and expenditures of $92,825,964 resulting in a projected year-end surplus of $475,017. The FY 2023-2024 Budget, as amended for budget adoption, projects a General Fund balance of $26.6 million on June 30, 2024, after transfers to and from other funds. Within this total fund balance, the City’s Financial Policy reserve is 20% of operating expenditures, or $18.6 million in FY 2023-2024, which is greater than the Government Finance Officers’ Association (GFOA) recommendation of “no less than two months (17%) of regular general fund operating revenues or regular general fund operating expenditures.” Additionally, the City Council has set aside $4.0 million as an “Economic Uncertainty” reserve. The balance of $4.0 million is unreserved.
The FY 2023-2024 Budget includes the following transfers out from the General Fund unreserved fund balance:
• $2.7 million to the Stormwater Fund to cover ongoing operations and capital expenses. This fund receives revenues from assessments to property owners, which have not increased since 1996. Without a successful Prop 218 vote, the fund will continue to require subsidies from the General Fund to cover ongoing operations and capital expenses.
o The City has significant regional obligations under the “Waste Discharge Requirements and National Pollutant Discharge Elimination System (NPDES) Permit for Municipal Separate Storm Sewer System (“MS4”) Discharges within the Coastal Watersheds of Los Angeles and Ventura Counties.” Under this permit, the City must undertake a myriad of programs to control and prohibit discharges of pollutants into the MS4. These programs include maintenance and operations work performed by employees and multi-million dollar capital projects to prevent pollution in the waters in the Beach Cities Watershed area, which include the Santa Monica Bay and the Dominguez Channel. Due to these growing requirements and rising costs, on May 16, 2023, City Council authorized staff to obtain an updated Assessment Engineer’s report and conduct a community survey in consideration of increasing Stormwater assessments.
• $293,478 to the Street Lighting and Landscape Fund to cover ongoing operations and capital expenses. This fund receives revenues from assessments to property owners, which have not increased since 1996. Without a successful Prop 218 vote, the fund will continue to require subsidies from the General Fund to cover ongoing operations and capital expenses.
• $1.0 million to the Capital Improvements Program (CIP) Fund to help fund the Senior and Scout Community Center project. To fund this transfer, $1.0 million was reduced from the allocation to the Pension Stabilization Fund.
• $994,920 to the CIP Fund in accordance with the Pension Liability Policy. This transfer is sufficient to pay for debt service on Fire Station No. 2 ($404,375) and help fund capital projects.
• $492,380 to the Pension Stabilization Fund. The City Council has the discretion to use funds accumulated in the Pension Stabilization fund to pay ongoing pension costs directly to CalPERS, which would provide General Fund relief if needed. As of March 2023, the balance in the Fund is $2.8 million.
The Pension Liability Policy was approved by the City Council in 2021 to provide guidance on how to allocate the budgetary “savings” achieved by the issuance of Pension Obligation Bonds (POBs). The budgeted transfers for the “savings” (i.e. the difference between what would have been paid to CalPERS compared to the level-debt service payments of $5.5 million) is currently allocated 80% to the CIP Fund (for debt service and capital projects) and 20% to the Pension Stabilization Fund (for future pension costs).
The FY 2023-2024 Budget also includes the following transfers in to the General Fund unreserved fund balance:
• $395,925 in excess funds from the County Parking Lots Fund per the City’s agreement with the County.
• $500,000 from the Information Technology (IT) Fund due to excess fund balance that has accumulated in the fund over the last few years.
BACKGROUND:
On February 21, 2023, staff presented the FY 2022-2023 Mid-Year Budget report. Year-end estimates for FY 2022-2023 indicate that revenues will exceed expenditures by about $1.25 million before transfers. This anticipated surplus is primarily due to revenues exceeding conservative estimates and unanticipated savings from vacant positions.
Subsequently, it was determined that a significant one-time expenditure budgeted for $1.0 million for Deferred Parks Maintenance projects was more appropriate to be spent from the CIP Fund instead of the General Fund. To accommodate this, a transfer of $1.0 million from the General Fund to the CIP Fund is required in FY 2022-2023. The Parks Maintenance project appropriation is included in the FY 2023-2024 Budget and Capital Improvement Plan.
With this change, the anticipated year-end surplus (revenues less expenditures) will be $2.25 million.
Revenues $88,509,646
Expenditures 87,255,638
FY 2022-2023 Year-End Projection $1,254,008
Reduce Expenditures for Transfer to CIP (1,000,000)
FY 2022-2023 Revised Projection $2,254,008
Based on the new projected surplus, and total net transfers of $9.7 million, the unreserved (available) General Fund balance on June 30, 2023, is projected to be $9.4 million after accounting for financial policy designations. These funds will be needed to fund capital priorities and relieve future anticipated deficits in the Stormwater Fund and Street Lighting & Landscape Fund.
The FY 2023-2024 Proposed Budget and Five Year Capital Improvement Plan (CIP) were presented during the City Council Meeting on May 2, 2023. The budget overview presentation outlined budgeted revenues, expenditures and changes in the fund balance due to transfer activity. The CIP presentation included a listing of funded capital projects included in the FY 2023-2024 capital budget as well as future fiscal years 2024-2025 through 2027-2028.
Subsequent budget discussions occurred during the City Council Budget Study Session on May 9 and a Regular City Council Meeting on May 16. In addition to reviewing the proposed spending plan, the City Council also discussed minor modifications to the budget and CIP.
DISCUSSION:
Proposed Budget Recap
The Proposed Budget is attached and available on the City’s website at www.manhattanbeach.gov/Budget. For highlights, it is recommended to read the City Manager’s Budget Message and Budget Overview within the Budget document. The Proposed Budget was developed as a conservative spending plan that maintains City Council and community priorities. Where appropriate, service level investments were added in response to feedback received from the Community Budget Meeting in February 2023 and online Budget Survey, as well as for City Council Work Plan items.
The FY 2023-2024 Proposed Budget was presented at the City Council Meeting on May 2, 2023, along with an initial Budget Overview presentation. As part of the Budget Study Session on May 9, 2023, departments presented expenditures by program, performance measures/metrics, key objectives for FY 2023-2024, and investments in service delivery, maintenance and infrastructure. Several service delivery investments are recommended to adapt to changing operational needs and service requests from the community, as well as provide adequate support staffing to address community priorities.
Annual costs of the changes, which are further explained in the Budget Message included in the Budget document, are summarized below:
Finance Department
• Upgrade three Account Services Representative I/II positions to Account Specialist I/II to adequately reflect the full scope of work activities performed, including utility billing, licensing and accounts receivable functions. Account Specialists conduct complex utility billing operations for the City’s 13,500 customers, as well as business and animal licensing. In addition to customer service and administrative skills, these functions also require technical and financial training due to the complexity of the City’s operations. (Total annual cost for three positions: $9,262)
• Upgrade two Revenue Specialist positions to Revenue Analyst to accurately reflect the level of program analysis and expertise required. As subject matter experts in utility billing, licensing and accounts receivable functions, these two positions serve as leads for the Account Specialists, while also conducting analytical work to resolve complex questions and ensure compliance with regulations (e.g. SB998) and internal controls. The positions also provide technical expertise for billing, licensing operations, and customer self-service portals (City, Infosend, and the new “MyWater Advisor”). (Total annual cost for two positions: $8,730)
These changes do not impact the number of full-time positions. The net impact to the General Fund is $17,992.
Parks and Recreation Department
• Delete one Recreation Coordinator and add a Marketing and Media Specialist to strengthen internal and external communications, broaden engagement, and invest in data and research to improve user experience in our parks, facilities, programs, and special events. (No fiscal impact)
These changes do not impact the number of full-time positions.
Community Development Department
• Add one Permit Technician to address service timelines, processing of permits, counter assistance, and provide additional assistance with outside special requests. (Annual cost: $91,529)
• Upgrade one Senior Building Inspector to Principal Building Inspector to allow for direct supervision for Building Inspectors, further reducing the excessively broad span of control of the Building Official. (Annual cost: $16,737)
• Upgrade Building Services Analyst to Senior Business Services Analyst to provide supervision to the Permit Center, along with in-depth technical expertise for EnerGov and other software applications. (Annual cost: $6,191)
• Delete Traffic Engineering Technician I/II and add one Administrative Analyst to allow greater flexibility in providing necessary services to the community and enhance the Traffic Engineering Division’s ability to implement the City’s Mobility Plan. (Annual cost: $4,005)
These changes result in the addition of one full-time position. The total cost for all position changes is $118,462 in the General Fund. It is important to note that future adjustments to planning and building fees may be implemented to fully recover the costs of these positions in the future.
Public Works Department
• Add one Associate Engineer position to improve capital project delivery capabilities. This added position is in lieu of $350,000 in project management consultant services that was eliminated from the FY 2023-2024 Budget thereby allowing senior level engineers to provide project oversight at a lower cost. (Annual cost: $123,678)
• Upgrade one Senior Management Analyst position to a Water Compliance Administrator to manage the Utilities Division’s regulatory compliance and environmental programs such as cross-connection control, water quality, water conservation, and the MS4 Permit. This staff member will be the liaison with regulatory agencies for water, storm, and sewer regulatory compliance and oversee all reports, proposals and contracts for said areas. (Annual cost: $5,064 split between Water, Stormwater and Wastewater Funds)
• Add two part-time Maintenance Worker I/II positions in the Field Operations Division to assist with parks and street maintenance work. (Total annual cost: $56,950 for both positions)
• Add one part-time Engineering Intern to train and assist with CIP project delivery. This will also establish a “feeder system” for hiring vetted graduate-level candidates when vacancies arise. (Annual cost: $27,168)
• Add two part-time Water System Operator I/II’s in the Utilities Division to assist with water maintenance projects such as valve exercising, fire hydrant lateral upgrades, fire hydrant upgrades, and new dead-end flushing systems. (Total annual cost: $62,660 for both positions - Water Fund)
• Add two part-time Sewer Maintenance Workers for the next three years to assist with regulatory compliance requirements relating to the cleaning of catch basins. (Total annual cost: $64,268 for both positions - split between Stormwater Fund and Wastewater Fund)
These changes result in the addition of seven part-time positions and one net full-time position for a total cost of $339,788. Of this amount, $207,796 is budgeted in the General Fund, $64,939 is budgeted in the Water Fund, $32,640 is budgeted in the Stormwater Fund, and $32,134 is budgeted in the Wastewater Fund.
Information Technology Department
• Add Part-time Staff to provide helpdesk and/or project management support. The staffing enhancement is needed to provide auxiliary support during project implementation or highly engaging technology projects. For example, the immediate deployment of hardware replacements on a large scale or the implementation of a failover Internet services provider (Annual cost: $47,000 - IT Fund).
The added part-time hours are budgeted in the Information Technology Fund.
As we have seen over the past few years, the City’s ability to quickly adapt to changing service level demands and dynamic shifts in employee attraction and retention patterns is critical to our success in serving our community. Across all funds, these changes total $523,241. Of this amount, two new full-time positions are included in the General Fund at an approximate cost of $215,207; the remaining funds are for various position reclassifications and part-time staffing.
The FY 2023-2024 Budget also includes one-time software, equipment and other investments to address public safety and other organizational needs:
Public Safety Investments
• Replacement Duty Handguns to provide officers safe and reliable firearms with sighting systems for enhanced accuracy, increasing the safety to the public. This initial cost is the first phase of replacing all duty handguns over the next four years. (One-time Cost: $25,000)
• Lightweight, ergonomically designed, rifle-rated Ballistic Shields to reduce officer injury during critical incident deployment. This initial cost is the first phase of replacing all ballistic shields over the next two years. (One-time Cost: $40,000)
• Two new Police Vehicles for the seven new Police Officer positions; these vehicles and positions were approved by Council at the mid-year budget; vehicle cost is $80,000 per vehicle, which includes outfitting the vehicles with police radios, lights, sirens, etc. (One-time Cost: $160,000)
• Police Station Outdoor Gym Roll-Up Doors to protect the gym from the elements and to extend the life of the workout equipment. (One-time Cost: $35,000)
• Parking & Animal Control Outdoor Area Cover to protect the area from the elements and to extend the life of the equipment. (One-time Cost: $14,000)
• Rapid Deployment Surveillance Trailer equipped with two-way speakers, floodlights, thermal and optical cameras, live-streaming capabilities, and battery and solar life of several weeks. The surveillance trailer can be deployed for monitoring crowds and security threats at special events or deployed in problem areas. (Annual Cost: $27,000 - SLES Police Grants Fund)
• Four E-Bikes for Bike Patrol, to assist us in deploying more officers in the field at one time and to cover more areas of the City, as well as to ensure that officers have bikes that are appropriately sized for their height, increasing officer safety and reducing the chance of injury. (One-time Cost: $24,000 - SLES Police Grants Fund)
• Quarterly Wellness Training to provide multidimensional mental health and wellness support to department personnel, addressing the trauma encountered by police employees and teaching coping and processing strategies. (Annual Cost: $18,000 - Insurance Fund)
• Complete the Local Hazard Mitigation Plan (LHMP) and Emergency Operations Plan (EOP), which will help reduce the impact of disasters. (One-time Cost: $30,000)
• Upgrade EOC Operations Technology Equipment to ensure the City is ready to respond in emergency situations. (One-time Cost: $100,000 - IT Fund)
Other Essential Services and One-time Initiatives
• Department Strategic Plan to outline priorities for Parks & Recreation. (One-time cost: $23,200)
• Professional services to develop a comprehensive, long-term outdoor dining and business use program, including community engagement, fiscal impact analyses, parking analyses, design, engineering and environmental review. (One-time cost: $250,000)
• Implement the State-mandated 6th Cycle Housing Element update and associated environmental documentation. (One-time cost: $250,000 paid from General Plan Maintenance balance sheet account)
• Retain a consultant to prepare a Historic Preservation Resource Survey as part of the City’s existing Historic Preservation Ordinance to identify and make available a resource for property owners and decision-makers to determine whether certain properties are eligible for historic landmark designation and Mills Act contracts, which allows for reduced property taxes in exchange for preservation. (One-time cost: $20,000)
• Conduct a comprehensive Citywide parking management study to determine current and future public parking needs and analyze strategies to efficiently manage our public parking supply for the next 10 years. (One-time cost: $250,000 split between Parking Fund, County Lots and Pier Lot Funds)
• Bring sign printing in-house by purchasing a sign printer and supplies for the creation of wayfinding and regulatory signs. Added costs are offset by annual savings of $8,100 in Contract Services. (One-time cost: $20,000 for the printer, Annual cost: $5,000 for supplies)
• Conduct a one-time Utility Undergrounding Assessment District survey with 4,400 property owners within potential undergrounding districts to assess the level of interest, as approved by City Council on July 5, 2022. The costs for mailing service and postage may be reimbursed by districts that form in the future. (One-time cost: $15,000)
• Creation of a designated sleeping quarters at the City Yard for staff to rest after responding to emergencies during the night. Staff oftentimes must return for regular shifts not long after emergency work is completed. (One-time cost: $50,000 - Water Fund)
• Purchase of a portable pump that quickly and safely eliminates flooding during storm events, main breaks, leaks, and other unforeseen water emergencies. (One-time cost: $150,000 - Stormwater Fund)
• Purchase of a CCTV van to provide the advanced capability of determining damage to a sewer line/storm drain. (One-time cost: $360,000 - Wastewater Fund)
• Redesign and repurpose the existing slab fountain in the Metlox Plaza into an area that is more appropriate for the environment and the location. (One-time cost: $250,000 - Parking Fund)
• Purchase of a concrete scrubber for improved cleaning of concrete surfaces, including the Pier, the Strand, business district sidewalks and near high-traffic parking areas. (One-time cost: $100,000 split between the Parking Fund, County Parking Lots Fund, and State Pier and Parking Lots Fund)
• Replace the Police Department’s Go-4s with trucks, thereby reducing maintenance expenses. (One-time: $100,000 - Fleet Fund)
• Add one Consultant Specifications Writer to develop City standard specifications to standardize products and equipment installed at City facilities. (One-time cost: $120,000 split between the General Fund, Water Fund, Wastewater Fund and Parking Fund)
• Consultant services to analyze operational practices and procedures of various department programs, as directed by the Public Works Director. (One-time cost: $30,000)
Unless noted otherwise, all of these items are included in the General Fund budget.
Changes to the Proposed Budget
At the May 9 Budget Study Session meeting, the City Council directed the following changes to the FY 2023-2024 Proposed Budget:
• Add monthly print advertising for Older Adults programming and services (Cost: $10,000 - General Fund).
• Add one-year lease for an additional portable live-view surveillance trailer (Cost: $27,000 - Police Safety Grants Fund).
At the May 16 Regular City Council meeting, two agenda items were approved with budget implications for FY 2023-2024:
• Reimbursable Coordinated Integrated Monitoring Program (CIMP) administrative fees increased Stormwater Fund expenditures by $48,567 and are offset by equivalent revenues in the fund.
• Adjustments to Street Lighting Fund revenues to align with final Assessment Engineer’s report (net increase +$225).
These changes are included on Exhibit “A” of the attached Budget Adoption Resolution No. 23-0067. Staff recommends that these changes be incorporated into the final budget and adopted with Resolution No. 23-0067. Additionally, the resolution contains approval for the recommended personnel classification changes that require City Council approval.
One change to the Budget Adoption Resolution from prior years is the inclusion of grant program funds with the carry forward language in Section 6. Staff proposes including this language due to challenges in estimating the precise amount of funds that will be spent/received by the end of the fiscal year on June 30. This authorization to automatically carry forward unexpended grant program expenditures and corresponding revenues is similar to the way the City treats ongoing capital project budgets. Authorizing this change will increase efficiencies in managing the City’s grant awards, which have significantly grown in quantity and dollar amount over the past few years.
GANN APPROPRIATIONS LIMIT
In 1980, California voters adopted Article XIIIB of the California State Constitution, commonly referred to as the Gann Initiative or Gann Appropriations Limit, placing limits on the amount of tax proceeds that State and local agencies can appropriate each year. The City’s limit is adjusted each year for inflation, population and other factors.
On June 5, 1990, Proposition 111 was voted into California law. Among other provisions, Proposition 111 provided for changes in the calculation of the Gann Appropriation Limit. The annual adjustments to the spending limit was modified by Proposition 111 to be more closely linked to the rate of economic growth in personal income or the percent increase in the local tax roll due to nonresidential property construction. Additionally, cities can choose to use the rate of change in population either within the City or County, whichever is higher. The City utilized elements of these adjustment factors in calculating this year’s Gann Appropriation Limit. The Gann calculation is reviewed annually by the City’s external audit firm as part of the annual audit process.
Staff has calculated the FY 2023-2024 Gann Limit to be $99,327,390. The City’s tax proceeds subject to the FY 2023-2024 Gann Limit equal $73,005,280. Therefore, the City is under the Gann limitation by $26,322,110 and in compliance with state law. Resolution No. 23-0068 adopting the Gann Appropriations Limit and the Gann limit calculation is attached.
PUBLIC OUTREACH:
A Public Hearing notice was published in The Beach Reporter on May 25, 2023, for the adoption of the Budget and Capital Improvement Plan. Additional outreach was conducted using social media and eNews notifications.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that there is no possibility that the activity may have a significant effect on the environment; therefore, pursuant to Section 15061(b)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
LEGAL REVIEW:
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary.
ATTACHMENTS:
1. Resolution No. 23-0067 (Budget Adoption and Exhibit “A”)
2. Resolution No. 23-0068 (Gann Appropriations Limit and Calculation)
3. Fiscal Year 2023-2024 Proposed Budget (Web-Link Provided)
4. PowerPoint Presentation